3Com builds on Chinese expertise

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• Intellectual Property,
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• Asia,
• Owned

Colin Barker ZDNet.co.uk

Published: 16 May 2007 18:26 BST

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Best known as the developer of Ethernet, the networking protocol at the centre of most current business networks, 3Com has gone through many different evolutions and is indeed a shadow of its former self. Revenues have entered a continued tailspin and many employees have moved on to other network equipment companies.

But now the company has found a strategy to turn itself around: it is turning Chinese. From boasting a market capitalisation of $654m (£330m) in 2005, thanks to a billion-dollar-plus merger with the Chinese network systems supplier H3C, the company has remodelled itself. Once solidly American, now 4,900 of its 6,200 staff are based in four centres across China, headquartered in Shanghai.

The man brought in to mastermind the difficult process of consolidation is 3Com veteran, chief executive Edgar Masri. He has spent many years with the company, including a stint as the head of 3Com in the UK, before leaving in 2000 to work in venture capital. He returned in August last year and, as he told ZDNet UK, he is enjoying coming to terms with the enormous challenges of his new role.

Q: Why did you return to 3Com?
A: Because I believed that 3Com had the capability to strategically re-insert itself as a major player in the enterprise after it had focused on the SMB and tried to claw its way back into the enterprise through the acquisition of H3C [3Com owns 51 percent of the combined company]. Now we are a company with $1.3bn in revenue, profitable and with very good market share of the enterprise.

For us to be a credible player in the market we had to reach profitability, and we did that in the past six months through several key initiatives. Firstly, the joint venture [with H3C], which put a healthy amount of profit into the picture. That could not have done it alone. It took an improvement in gross margin, which had risen by almost five points in the non-joint venture business.

What is the vision?
Our vision is that the world is flat and that this industry, like the oil industry before it, is ripe for globalisation. We are the only company I can think of that is really living up to this globalisation potential. We have an engineering presence in the US and in Europe and we have engineers in China and in India. That is our vision for the enterprise.

People say to me: you have 6,200 employees and 4,900 of them are Chinese or in China; doesn't that mean you are a Chinese company? I say: we are a global company, the first truly global networking company.

Would it be fair to say you are doing what a lot of other companies would like to do but cannot? That is, using another country to establish a true global presence?
You have only seen the tip of what we can achieve. Today you can see that, according to the Financial Times, the Chinese market, in terms of the stock exchange, is bigger than the rest of Asia combined. It cannot continue growing at the same rate, because in two years you would need another planet Earth.

We continue working with the Chinese government to get them to continue to recognise the Chinese nature of our business. We do that through subsidies we get from the Chinese government because of the business we are in. That is a good portion of our profit. We are pleased to be able to say that we had to prove that our business is increasing the intellectual property in China, particularly in software. We believe it is a win/win.

The Chinese government wants to take advantage of the growth that the internet brings. But, while they want to take advantage of that, they also want to control it. How do you deal with that?
As a global company and a US company, we are very respectful of people's privacy. But, at the same time...

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